Minister revises contested regulations to attract renewables investment

Petromindo|Khalsa

Minister of Energy and Mineral Resources Ignasius Jonan has recently revised a number of contested ministerial regulations governing the power sector in a bid to help attract investment especially in the renewables sector.

Director General of Electricity at the ministry, Andy Noorsaman Sommeng said on Thursday that the revised regulations are aimed at helping to improve investment climate in the renewables sector, but at the same time also aimed at pushing efficiency to help produce electricity affordable to the people.

The move comes following recent criticism by President Joko Widodo on the minister for issuing difficult regulations deemed hampering investment in the country?s energy and mining sectors. The government has set a target for renewables to account for 23 percent of the country?s energy mix by 2025, and for the green electricity to help increase power supply particularly in remote regions which have local renewables potential.

Under newly introduced Ministerial Regulation No 50/2017, independent power producers (IPPs) are now allowed to negotiate with PLN the tariff of electricity from renewables projects located in regions where the local electricity supply cost of PLN (or BPP) is lower than the national average. But the agreed tariff will still require the approval of the minister.

Under the previous Ministerial Regulation No 12/2017, which has been criticized by industry players, the tariff of electricity sold to PLN is set at maximum 85 percent of the local BPP except for geothermal and waste-based power plant projects.

For power plants located in regions where the local BPP is already higher than the national average, the tariff is based on the mechanism set out under Ministerial Regulation No 12, except for hydro power plants where the tariff has been increased to equal to 100 percent of the local BPP (up from the previous 85% ceiling). This tariff is the same as applied to geothermal and waste-based projects.

Under the new regulation, PLN is also now allowed to directly appoint developers for renewable-based projects. Under the previous regulation, the selection can be made via tender and direct appointment, the last of which is limited to projects with small capacity of around or less than 10 MW.

The Ministerial Regulation No 50 also adds a new clause on marine current power plant project.

Meanwhile, under Ministerial Regulation No 49/2017, a controversial clause requiring IPPs to also share the risk from government force majeure such as changes in regulations and policies has been omitted.

Head of the Indonesia Renewables Energy Society (METI) Surya Darma generally welcomes the new revisions particularly with regard to changes in the renewables tariff, but lamented that the tariff mechanism still requires the approval of the minister, which he said is tantamount to creating longer bureaucracy.

He also criticized the government for maintaining the build-own-operate-and transfer (BOOT) system in the renewables projects, where the IPPs are required to transfer their assets to government after their contracts with PLN expire in 30 years. (*)